1. Technical Field
The present invention relates in general to risk managing future events, and in particular, to insurance-funded end-of-lifetime activities for a facility.
2. Description of the Related Art
In the United States, there are approximately 950,000 existing oil and gas industry related wells currently being tracked and/or regulated by state and federal agencies. About 30,000 new wells are drilled each year on private, state, federal, and Indian lands onshore and in the bay, coastal and offshore waters of the United States.
Over time, a well's production rate declines as fluids (e.g., oil and gas) are removed from underground reservoirs via the commercial production/depletion process. When the daily expenses of production approach the daily value of the fluids produced, the continued production of the well becomes uneconomical. Because larger and more stable oil companies generally have higher operating costs, when it becomes uneconomical to produce a well, that well is often sold down the operator “food chain” to operators with lower operating expenses. Smaller operators with lower operating costs are typically better able to profitably produce the well into its last years of life. The vast majority of wells are therefore sold several times over their lives, with each successive or “legacy” owner/operator typically having less financial resources than the previous operator.
State and/or federal governmental regulatory agencies generally require wells that have been non-producing longer than a specified time period be plugged by the last operator. The process of plugging a well bore (also referred to as “plugging and abandonment” or “P&A”) with cement or other material renders the well bore environmentally safe and incapable of acting as a conduit for commingling of subsurface formation fluids and/or the introduction of either subsurface or surface contaminates into fresh water underground aquifers. Because the financial burden of plugging a non-producing well is significant, many operators unfortunately choose to abandon non-producing wells without the required plugging. Wells having no clearly responsible party with the ability to perform the required plugging are referred to as “orphaned” wells. It therefore becomes the responsibility of the state, federal or Indian government to pay for the plugging and abandonment of these orphaned wells.
To mitigate the cost of plugging orphaned wells, most states have instituted a bonding program requiring well and facility operators, as a condition of state authorization to operate, to post financial assurance bonds naming the state as payee in case the operator fails to plug wells as required. Although operators can elect to “bond” wells by the foot of depth this option is chosen in relatively few instances such as when the operator has only a few wells together having aggregate footage depth such that the cost per foot is less than a blanket bond for the same number of individual wells. More typically operators elect a blanket bonding option wherein a fixed monetary amount covers multiple wells. In such instances the amount of money the state is able to collect from delinquent operators' blanket bonds typically averages far less than the actual cost incurred to plug the wells which are covered by the blanket bonding. Since it is less expensive than plugging their wells, unscrupulous operators often abandon wells and forfeit their bonds. This has led to thousands of wells being “dumped” to the states for plugging. The result is billions of dollars of plugging liability falling to states as thousands of wells are left unplugged, potentially contaminating subsurface fresh water sources needed for human and agricultural use. Additionally, entire parcels of surface land have been devalued due to the fact that the aforementioned “unscrupulous operators” were negligent in containing surface contamination of multiple well sites during operations prior to their “dumping” of said wells. This is a common and growing environmental problem facing governments and private land owners throughout North America.
Operators of oil and gas industry wells and the owners (private and public) of the land and royalty rights where wells and/or support facilities are located (including bay, coastal and offshore) are at significant economic risk from unplugged wells and improperly decommissioned/abandoned support facilities (e.g., offshore drilling and production platforms). Some operators feel at risk from a legacy operator failing to properly plug a well because there is a growing concern that state governments may begin to seek damages from “deep pocket” previous operators to help defray the state's rapidly growing plugging expenses. Land and royalty owners are at risk from surface and subsurface commingling of fluids despoiling the land for agriculture and other purposes and/or damaging underground reservoirs above the well production zone, rendering them significantly polluted and/or unusable. In addition, governmental entities are at financial risk as the financial burden of plugging orphaned wells continues to grow.